Feuerstein's Biotech-Stock Mailbag

I couldn't make a call on whether the U.S. Food and Drug Administration was going to approve Pozen's POZN migraine drug Treximet -- just too much uncertainty. But yes, regulators did approve the drug April 15, and Pozen shares reacted accordingly, up about 30% to $13.27 as I peck out this column.

The approval prompted Cal T. to write and ask, "Have you changed your mind on Pozen since [the] FDA approval [of Treximet]?"

The approval was clearly a positive for Pozen, especially after all of the previous Treximet delays, but I think it gets harder for the company from here. With approval complete, GlaxoSmithKline GSK, Pozen's partner, now has to sell Treximet. The U.K. drug giant has to convince doctors -- and more important, insurance companies -- that the benefits of Treximet outweigh putting migraine sufferers on cheaper, generic Imitrex, which will come out at the end of the year.

I think that's going to be a very tough task. Insurance companies don't take kindly to me-too drugs designed primarily to protect drug company profits. Let's face it, that's what Treximet is -- a not-so-new drug that Glaxo needed to develop so it wouldn't lose entirely the nearly $1 billion in U.S. sales generated by brand-name Imitrex. We're not talking groundbreaking medicine here.

As The Wall Street Journal spelled out quite well in a recent article, the only thing Glaxo seems to do these days is modify existing drugs in an attempt to stave off generic competition.

I must say I stand with Jefferies & Co. analyst Eun Yang, who raised her price target to $14 with a hold rating based on her guess that Glaxo will be able to convert about 20% of Imitrex users to Treximet. That translates into $200 million in peak revenue, or about $25 million in royalty revenue to Pozen.

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Controversy anyone? Peter B. writes, "I was wondering if you might indulge me by expanding on your comments about Elan ELN being a cult stock. You called it 'the textbook definition of a cult stock.' How so? What are some other well-known examples? Beleaguered Apple back in the day?"

A cult stock -- at least by my definition -- is one in which a large base of shareholders, typically retail or small investors, drink the proverbial Kool-Aid served up by management. These investors then proselytize for their beloved stock, fiercely defending it against any unwelcome criticisms or concerns, no matter the merits.

Elan pretty much fits that bill. Now, to be nice, many Elan shareholders are independent-minded. They do their own research, judge the pros and cons seriously and come out true believers. That's perfectly reasonable.

Unfortunately, there are just as many, if not more, Elaniac cultists out there, as my email inbox can attest! These are the folks with the blinders on, those who believe that Elan and its CEO Kelly Martin, for instance, are selflessly developing Alzheimer drugs not for profit but because they simply want to help mankind. Or that Biogen Idec BIIB, Elan's partner, is trying to undermine or undersell Tysabri in multiple sclerosis so -- in a pique of childish retaliation -- they post the home address of the Biogen Idec CEO on an Internet stock message board.

Elan can do no wrong, scream these cultists, and curses on those who even dare to raise a question about the effort. The fact that many of these cultists post ceaselessly on stock message boards -- which shows they're really in it for the money -- is beside the point.

In biotech, Genta GNTA was a cult stock for a long time, as was Northfied Labs NFLD. Apple AAPL is probably a good example of a tech cult stock. (Oh boy, before the Apple-tons start emailing me, I'm writing this column on a Macbook and I have an iPhone in my pocket.)

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